If you’ve been following the news, you’ve probably seen the recent flurry in activity around non-fungible tokens (NFTs). The US$69 million sale of a digital artwork sold by auction house Christie’s is what really brought this asset class into the public eye. While the sale has certainly created buzz and excitement, it has also left many wondering whether we’re in the middle of a bubble or whether there’s more to the NFT “craze”.
To recap, NFTs are unique digital tokens that typically represent ownership in a digital collectible good, such as a digital work of art. Most NFT content so far has been centred around digital art and digital collectibles. NFTs could, however, also serve a purpose in the realm of physical assets and collectibles. In this article we’ll explore several ways in which NFTs are entering the world of physical assets, and what real benefits they could bring beyond speculation.
The most talked about use case for NFTs today is that of digital art. Platforms like OpenSea and Rarible allow artists to upload and sell their digital art to collectors and investors. Once a collector buys the NFT, they become the new owner of the digital artwork and can sell it to other users on the platform if they wish.
Other digital collectibles are also gaining momentum, particularly those tied to well-known brands and franchises. Notable examples include digital football cards sold via Sorare, which is now officially partnered with most of Europe’s top football clubs, and NBA Top Shot, a platform which recently closed a US$305 million funding round and enables fans to buy digital moments in NBA history.
In addition to digital assets, there are various ways in which NFTs and blockchain technology more generally could play a role in the arena of physical assets.
One of the key attributes of NFTs is that it can help with verification and authentication processes as each NFT is unique and can’t be reproduced. An interesting example includes Nike who has filed a patent for “CryptoKicks” which would allow it to tie a digital asset to each pair of shoes. When someone wants to resell their shoes, they could sell the shoe as well as transfer ownership in the digital asset paired with that shoe. Compare it to when you want to buy an expensive second-hand item and ask for a receipt or paperwork. The difference in the case of the Nike example is that since it’s recorded digitally and can’t be tempered with due to blockchain’s unique qualities, the “receipt” cannot be faked which adds an additional layer of security.
In the space of luxury goods, similar initiatives have come into the market in recent years. One of the most well-known examples is Everledger, a company that started by putting diamonds on the blockchain. This allows for their authenticity to be verified and also for the entire supply chain to be mapped out in a tamper proof way, as would be a risk with a regular paper trail. This process can help make sure diamonds aren’t coming from, for instance, conflict-ridden areas and marketed by intermediaries as coming from somewhere else. Comparable initiatives are popping up in other industries that have traditionally been intransparent, such as the wine industry. In this case the goal is again making sure that there is a clear record of where the wine came from and where it has been throughout its journey.
2). Price Transparency
If every sale of an item is recorded on the blockchain and the data is publicly accessible, it greatly increases price transparency. This could benefit investors and collectors in several ways. Firstly, having an accurate picture of price history can help determine whether you’re getting a fair price and whether what you’re buying has potential as an investment. Moreover, in a market with more price transparency, buyers typically benefit as there is less room for brokers to charge high commissions or unfair prices.
3) Royalty Payments
In the music industry it is common for an artist to benefit from their work as long as it remains popular via royalty payments. In the world of physical assets, however, royalty payments aren’t often talked about. Some platforms like Rarible now allow creators to earn commission on each future sale. A similar concept could be embedded in the sale of physical works of art or other collectibles if ownership rights are transferred via NFTs. The NFT, which is bound by a smart contract, could specify an auto-execute payment to the original creator whenever the NFT changes hands. Not all collectors support this concept, as some believe that once they have bought an item they are now the full owner, and it’d be unfair to have to pay a portion of future sales to the creator. On the other hand, some argue it is only fair for creators and their families to profit if works drastically go up in value at a much later point in the artist’s life or even after death.
NFTs have been around for a number of years, but have only recently started to become popular with a wider audience. As a result of its exploding popularity, the landscape is changing fast and new innovations and platforms are coming out every week.
At Koia, we want to be on the forefront of these developments and as a start, we plan to use blockchain technology to fractionalise the assets we list on our platform. Some of the advantages this brings are precisely the ones that listed above: an added layer of security and the ability to independently verify how many tokens are issued so we can never sell more than we claim to be selling, as well as full price transparency of past trades.
Given the benefits NFTs and blockchain could potentially bring to the realm of physical assets, we believe that over the next few years we’ll see a greater convergence between the space of digital and physical collectibles, with more players in the physical world adopting some of the technology that’s now almost exclusively reserved for digital assets.
This post originally appeared as a guest post for Zash, the social network for investors.
At Koia, we allow you to start investing in tangible assets for as little as €50, via fractional investing. Our experts make sure to source and buy the best assets, and we take care of authentication, storage and insurance. All of the benefits, with none of the hassle.
The articles and information made available on Koia are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances.